Proposed restrictions under the US CLARITY Act on stablecoin yields could drive capital offshore, away from regulated markets. Mega Matrix’s Colin Butler argues that banning compliant stablecoins from offering yield could push capital into synthetic structures outside US oversight. Payment stablecoins like USDC must be fully backed by cash or short-term Treasuries under the GENIUS Act, limiting yield options and potentially accelerating capital migration.

The ban on stablecoin yields may lead to increased demand for “synthetic dollars,” which are dollar-pegged instruments maintained through trading strategies. Ethena’s USDe generates yield through delta-neutral strategies involving crypto collateral, falling outside the payment stablecoin definition. Critics warn that limiting onshore yield could push capital into unregulated offshore structures, bypassing US regulations.

Banks fear that yield-bearing stablecoins could trigger deposit outflows and weaken lending capacity. However, Falcon Finance’s Andrei Grachev argues that stablecoins provide access to crypto-native environments where traditional banking rails are inefficient. Butler warns that banning yield on compliant stablecoins could impact US competitiveness globally, potentially benefiting countries with yield-bearing digital currencies like China.

The US risks losing its competitive edge by banning yield on compliant stablecoins, pushing capital towards interest-bearing digital currencies like China’s digital yuan. Grachev suggests the US should set clear standards for auditable yield products to maintain leadership. However, the current CLARITY Act draft may treat all yield as equal, failing to differentiate between transparent, regulated structures and opaque alternatives.

Read more at Cointelegraph: Stablecoin Yield Bans Under CLARITY Act Could Push Capital Offshore